I remember it. I also remember it total being nonsense, but some were saying it.
But clearly they can sell phones at $350-$450 and make 45%-60% profit.
Funny how people read things differently. I was thinking " margins on the 5S are HUGE" , others are thinking "there is no way they can se a device costing $173 for less than $550.
They can definitely cut the cost by $200. The profit is $350.
I distrust these costings anyway.
That's exactly the problem with these reports on the cost of the bill of materials. People mistake them for the total cost of the item. There are lots of additional costs. R&D and software development investments, which are amortized among all devices. Future software upgrades, which are accrued. Free bundled software like iWork and iLife. Below the line marketing. Logistics. Packaging.
And one of the biggest - tooling costs. That's another misunderstanding people have. Too many think that Apple has no manufacturing costs other than to the outsourcers. Not true at all, and a lot of custom tooling is paid for and owned by Apple. See this.
which would be? you seem to like to call predictions. I'd like to hear your prediction as to when Apple will sell 5c for $450 unlocked and the business justification for lowering margin.
When they release the next machine. Which might be sooner than 12 months.
Appleinsider. The only Apple centric site where being pro-Apple( I hope they sell more devices) gets the Angries out in force.
wrong again. Apple has 20% of the entire smartphone market. But the vast majority of smartphones are sold for less than $300. I specifically mentioned that there are not 480M smartphone customers buying $300 phones worldwide.
Nokia's averaging selling price is less than $250 per phone.
Imagine how low the cheap chinese brands are?
Very cheap I am sure. But that is not what I am talking about. I acknowledged , and you quoted, that we were talking about the $300+ market but that it was growing.
Overtime the sub $100 market will collapse like the home computer market of the 80's. apple can sweep up the middle range.
If they sold it for $300, they would. Also component costs decrease with larger orders. And over time.
You know nothing about pricing elasticity. Seriously, contact your local community college and take an introductory economics course. There are very advanced statistical models which show how to price consumer goods to optimize revenue, profit, and unit sales. This isn't something some anonymous person on an Internet forum is going to know anywhere close to Apple.
which would be? I'd like to hear your prediction as to when Apple will sell 5c for $450 unlocked and the business justification for lowering margin.
Well, we'll have to see how the 5c sales are for this next quarter. If the early statistics prove to be correct and the 5c is selling at the same levels as it did at introduction (very low in China and Japan) then there is a good chance we'll see a price reduction. We could even see a small reduction by the end of November.
You know nothing about pricing elasticity. Seriously, contact your local community college and take an introductory economics course. There are very advanced statistical models which show how to price consumer goods to optimize revenue, profit, and unit sales. This isn't something some anonymous person on an Internet forum is going to know anywhere close to Apple.
They can definitely cut the cost by $200. The profit is $350.
I distrust these costings anyway.
That's exactly the problem with these reports on the cost of the bill of materials. People mistake them for the total cost of the item. There are lots of additional costs. R&D and software development investments, which are amortized among all devices. Future software upgrades, which are accrued. Free bundled software like iWork and iLife. Below the line marketing. Logistics. Packaging.
And one of the biggest - tooling costs. That's another misunderstanding people have. Too many think that Apple has no manufacturing costs other than to the outsourcers. Not true at all, and a lot of custom tooling is paid for and owned by Apple. See this.
I agree.. which would lead me to believe that with the retooling and change to do plastic, Apple is not even making the extra $20 BOM cost difference between last year's 5 design and this year's 5c.
You know nothing about pricing elasticity. Seriously, contact your local community college and take an introductory economics course. There are very advanced statistical models which show how to price consumer goods to optimize revenue, profit, and unit sales. This isn't something some anonymous person on an Internet forum is going to know anywhere close to Apple.
Lol. Pricing elasticity is exactly what we are talking about here. Cheaper prices drive more sales unless your product is a super elite product like a BMW. The iPhone is a mass market product.
I am sure they can estimate sales in apple better than me, or an idiot who thinks that you can't get orders if magnitude more sales at some prices than others. A good historical example is the original iPhone. Far too expensive at $399 - sold like hot cakes at $199. (Subsidised)
My guess is apple know what they can sell at that price point but also know their manufacturing capabilities.
They can definitely cut the cost by $200. The profit is $350.
NO, NO, NO., NO!
Even if their cost were accurate, the MARGIN would be $350. NOT the profit. The profit is what's left after you deduct all your overheads (sales, marketing, design, admin) from the margin.
That's undoubtedly true. These projections say that Apple's gross margins are 70% on most products. Yet their actual gross margin is half of that. Some of that is mix, but the iPhone makes up such a large portion of their sales that the total margin would have to be higher than 36% if they were even close to being correct.
Lol. Pricing elasticity is exactly what we are talking about here. Cheaper prices drive more sales unless your product is a super elite product like a BMW. The iPhone is a mass market product.
Why don't you tell us exactly what the price elasticity is for the iPhone, then.
In reality, the 5S is outselling the 5C by a huge margin - even though it's considerably more expensive. iPhone customers are not as price sensitive as your average crappy phone customer.
No. We are angry because people expect Apple to sell products at a price that will cut their margins in half. At the same time they cant' manufacter enough phones to meet demand. make sense?
With 9 million sold in 3 days all the doubters have to shut the hell up and realize Apple knows what they are doing.
Yes they do. But why would you care about "margins" rather than earnings?
I ask as a ten year on-off owner of Apple stock who is heavily in aapl options.
Apple probably did get it right for this and next quarter . But they also need a mid range phone.
which would be? I'd like to hear your prediction as to when Apple will sell 5c for $450 unlocked and the business justification for lowering margin.
Well, we'll have to see how the 5c sales are for this next quarter. If the early statistics prove to be correct and the 5c is selling at the same levels as it did at introduction (very low in China and Japan) then there is a good chance we'll see a price reduction. We could even see a small reduction by the end of November.
I like the way you used safe terms. "if" "good chance" and "could" . nice.
Based on Apple's signal to the street that it seems to me that Apple is not interested in going after market share over margin. As a result, I'm gonna predict they will keep the price the same and continue to manage their inventory aggressively. That is my prediction, no "if" "good chance" or "could" about it. When I am wrong, go ahead and call me on it.
Why don't you tell us exactly what the price elasticity is for the iPhone, then.
In reality, the 5S is outselling the 5C by a huge margin - even though it's considerably more expensive. iPhone customers are not as price sensitive as your average crappy phone customer.
The 5s is outselling according to a few reports on one site on the Internet. Now if any of you people owned stock or listened to conference calls or read asymco etc. you would know that the 4S was selling more than the 5 recently.
However the 5S outselling the 5c is probably a first week thing. In the long term apple would expect the lower cost phone to sell more.
I like the way you used safe terms. "if" "good chance" and "could" . nice.
Based on Apple's signal to the street that it seems to me that Apple is not interested in going after market share over margin. As a result, I'm gonna predict they will keep the price the same and continue to manage their inventory aggressively.
They could be saying that. Or they knew that they had plenty of pre-orders for the 5C in China etc ( where they probably are giving a deal rather than getting the $350 *margin* - I knew that of course).
In any case they are right to maintain a high price now. They couldnt meet demand in the holiday Q for a cheap 5c. But free to reduce it in future. You know - like the original iPhone.
Best of both worlds.
Again though. Why are people so upset by the idea of a cheaper iPhone?
Name me one exclusive mid-range phone maker that makes money? There is none. There never has been one. Ever. Why chase a market that makes no money? Its the same thing as the $400 PC market. No profits at all.
Well two reasons.
1) market share since iOS is a platform.
2) apple would make money. As we can see from the breakdown costs.
Again though. Why are people so upset by the idea of a cheaper iPhone?
I guess someone has to first convince Apple to build a cheaper iPhone. They have not done that yet according to this BOM breakdown.
I personally don't care if Apple builds a cheaper iPhone as long as they keep their margin high. I personally, will buy the premium model if they do. Its a no brainer in the US to pay $200 for an update and then 2 years later sell it back and get more then you paid for the upgrade cost. Sold my 2 yr old 4S for $270, since I paid $200 for it. Do you think we here in the US will be able to do that with "cheap" phone?
From my point of view these upgrades are better than free for me. yeah.. yeah.. I know about the carrier charges vs prepaid, but even if you factor that in its still a good deal.
I like the way you used safe terms. "if" "good chance" and "could" . nice.
Based on Apple's signal to the street that it seems to me that Apple is not interested in going after market share over margin. As a result, I'm gonna predict they will keep the price the same and continue to manage their inventory aggressively. That is my prediction, no "if" "good chance" or "could" about it. When I am wrong, go ahead and call me on it.
One other reason that I can see the price being lowered (and I have to thank sog and Jragosta for reminding me) is that, using the same early statistics, China has a burgeoning middle and upper middle class population. If these people are looking at the 5s and 5c and deciding that they would rather pay the $100 difference to the get the 5s then it might become obvious to Apple that a mid-tier phone at the usual Apple mark-down is unnecessary and a further reduction is required for the 5c to make it more attractive.
The real nail would be if Apple found out that the 4s was selling faster than the 5c is in the emerging markets.
[by the way... this has nothing to do with market share... more to do with price elasticity. ]
No, it doesn't go both ways because Apple has actually set the market price and is managing its public business based on its understanding of how to do that accurately. Anonymous Internet persons, myself included, aren't relevant to identifying the optimum pricing at all.
I think one of the more strategic issues that the 5c solves for apple is the ease of construction and the missing costs associated with repairing and replacing out of spec phones. The iPhone 5 was the hardest phone to manufacture that Foxconn has ever made. The increase in opening weekend supply for the sales of the combined phones is almost double the level last year. I suspect the cost difference between manufacturing the 5c and the 5s is much higher than the estimate here. I would expect it to be more like $5-$10 per phone rather than the $1 listed here.
I am simply guessing, but there have been no complaints about the cosmetic issues faced by the 5 when it was first introduced. Perhaps the major difficulties that were faced last year were solved and the cost is that low, but it would make more sense for Apple to introduce the lower priced phone with higher margins. The opportunity cost for making the 5c includes the gross profit lost by selling an iPhone 5s. If Apple had sold the 5c phone for $450 then I could see the rational for dropping the margins to increase over all sales. At this higher price point buyers either want the phone or not. They all can afford it if they can afford the phone contract. A free phone on contract or a 30% less expensive phone off of contract would be compelling enough to drive a larger market share.
My guess is that Apple will introduce a quicker update to these phones and drop the iPhone 5c to $450 in April, the 5S to $550, a new 6 for $650, and a new larger 6 for $750. Higher prices are not going to drop demand for the more expensive phone. Remember the customer in the west is paying $2500 over the life of the contact for wireless. Another $100 will not stop sales of a bigger phone. I would expect the 6 to be standard with 32 gigs of storage. Perhaps we will see the next leg up in Apple's financials after the introduction of this phone. If I am right about this then this year's gross margins for Apple may break 40% again. Next year the gross margins could drop back to 38%.
Comments
But clearly they can sell phones at $350-$450 and make 45%-60% profit.
Funny how people read things differently. I was thinking " margins on the 5S are HUGE" , others are thinking "there is no way they can se a device costing $173 for less than $550.
Not so queer as folk.
They can definitely cut the cost by $200. The profit is $350.
I distrust these costings anyway.
That's exactly the problem with these reports on the cost of the bill of materials. People mistake them for the total cost of the item. There are lots of additional costs. R&D and software development investments, which are amortized among all devices. Future software upgrades, which are accrued. Free bundled software like iWork and iLife. Below the line marketing. Logistics. Packaging.
And one of the biggest - tooling costs. That's another misunderstanding people have. Too many think that Apple has no manufacturing costs other than to the outsourcers. Not true at all, and a lot of custom tooling is paid for and owned by Apple. See this.
When they release the next machine. Which might be sooner than 12 months.
Appleinsider. The only Apple centric site where being pro-Apple( I hope they sell more devices) gets the Angries out in force.
Very cheap I am sure. But that is not what I am talking about. I acknowledged , and you quoted, that we were talking about the $300+ market but that it was growing.
Overtime the sub $100 market will collapse like the home computer market of the 80's. apple can sweep up the middle range.
If they sold it for $300, they would. Also component costs decrease with larger orders. And over time.
You know nothing about pricing elasticity. Seriously, contact your local community college and take an introductory economics course. There are very advanced statistical models which show how to price consumer goods to optimize revenue, profit, and unit sales. This isn't something some anonymous person on an Internet forum is going to know anywhere close to Apple.
which would be? I'd like to hear your prediction as to when Apple will sell 5c for $450 unlocked and the business justification for lowering margin.
Well, we'll have to see how the 5c sales are for this next quarter. If the early statistics prove to be correct and the 5c is selling at the same levels as it did at introduction (very low in China and Japan) then there is a good chance we'll see a price reduction. We could even see a small reduction by the end of November.
You know nothing about pricing elasticity. Seriously, contact your local community college and take an introductory economics course. There are very advanced statistical models which show how to price consumer goods to optimize revenue, profit, and unit sales. This isn't something some anonymous person on an Internet forum is going to know anywhere close to Apple.
I'm glad you said that.
(... and it can go both ways)
They can definitely cut the cost by $200. The profit is $350.
I distrust these costings anyway.
That's exactly the problem with these reports on the cost of the bill of materials. People mistake them for the total cost of the item. There are lots of additional costs. R&D and software development investments, which are amortized among all devices. Future software upgrades, which are accrued. Free bundled software like iWork and iLife. Below the line marketing. Logistics. Packaging.
And one of the biggest - tooling costs. That's another misunderstanding people have. Too many think that Apple has no manufacturing costs other than to the outsourcers. Not true at all, and a lot of custom tooling is paid for and owned by Apple. See this.
I agree.. which would lead me to believe that with the retooling and change to do plastic, Apple is not even making the extra $20 BOM cost difference between last year's 5 design and this year's 5c.
Lol. Pricing elasticity is exactly what we are talking about here. Cheaper prices drive more sales unless your product is a super elite product like a BMW. The iPhone is a mass market product.
I am sure they can estimate sales in apple better than me, or an idiot who thinks that you can't get orders if magnitude more sales at some prices than others. A good historical example is the original iPhone. Far too expensive at $399 - sold like hot cakes at $199. (Subsidised)
My guess is apple know what they can sell at that price point but also know their manufacturing capabilities.
NO, NO, NO., NO!
Even if their cost were accurate, the MARGIN would be $350. NOT the profit. The profit is what's left after you deduct all your overheads (sales, marketing, design, admin) from the margin.
That's undoubtedly true. These projections say that Apple's gross margins are 70% on most products. Yet their actual gross margin is half of that. Some of that is mix, but the iPhone makes up such a large portion of their sales that the total margin would have to be higher than 36% if they were even close to being correct.
Why don't you tell us exactly what the price elasticity is for the iPhone, then.
In reality, the 5S is outselling the 5C by a huge margin - even though it's considerably more expensive. iPhone customers are not as price sensitive as your average crappy phone customer.
Yes they do. But why would you care about "margins" rather than earnings?
I ask as a ten year on-off owner of Apple stock who is heavily in aapl options.
Apple probably did get it right for this and next quarter . But they also need a mid range phone.
which would be? I'd like to hear your prediction as to when Apple will sell 5c for $450 unlocked and the business justification for lowering margin.
Well, we'll have to see how the 5c sales are for this next quarter. If the early statistics prove to be correct and the 5c is selling at the same levels as it did at introduction (very low in China and Japan) then there is a good chance we'll see a price reduction. We could even see a small reduction by the end of November.
I like the way you used safe terms. "if" "good chance" and "could" . nice.
The 5s is outselling according to a few reports on one site on the Internet. Now if any of you people owned stock or listened to conference calls or read asymco etc. you would know that the 4S was selling more than the 5 recently.
However the 5S outselling the 5c is probably a first week thing. In the long term apple would expect the lower cost phone to sell more.
Cf iPad mini
They could be saying that. Or they knew that they had plenty of pre-orders for the 5C in China etc ( where they probably are giving a deal rather than getting the $350 *margin* - I knew that of course).
In any case they are right to maintain a high price now. They couldnt meet demand in the holiday Q for a cheap 5c. But free to reduce it in future. You know - like the original iPhone.
Best of both worlds.
Again though. Why are people so upset by the idea of a cheaper iPhone?
Well two reasons.
1) market share since iOS is a platform.
2) apple would make money. As we can see from the breakdown costs.
Again though. Why are people so upset by the idea of a cheaper iPhone?
I guess someone has to first convince Apple to build a cheaper iPhone. They have not done that yet according to this BOM breakdown.
I personally don't care if Apple builds a cheaper iPhone as long as they keep their margin high. I personally, will buy the premium model if they do. Its a no brainer in the US to pay $200 for an update and then 2 years later sell it back and get more then you paid for the upgrade cost. Sold my 2 yr old 4S for $270, since I paid $200 for it. Do you think we here in the US will be able to do that with "cheap" phone?
From my point of view these upgrades are better than free for me. yeah.. yeah.. I know about the carrier charges vs prepaid, but even if you factor that in its still a good deal.
I like the way you used safe terms. "if" "good chance" and "could" . nice.
One other reason that I can see the price being lowered (and I have to thank sog and Jragosta for reminding me) is that, using the same early statistics, China has a burgeoning middle and upper middle class population. If these people are looking at the 5s and 5c and deciding that they would rather pay the $100 difference to the get the 5s then it might become obvious to Apple that a mid-tier phone at the usual Apple mark-down is unnecessary and a further reduction is required for the 5c to make it more attractive.
[by the way... this has nothing to do with market share... more to do with price elasticity. ]
I am simply guessing, but there have been no complaints about the cosmetic issues faced by the 5 when it was first introduced. Perhaps the major difficulties that were faced last year were solved and the cost is that low, but it would make more sense for Apple to introduce the lower priced phone with higher margins. The opportunity cost for making the 5c includes the gross profit lost by selling an iPhone 5s. If Apple had sold the 5c phone for $450 then I could see the rational for dropping the margins to increase over all sales. At this higher price point buyers either want the phone or not. They all can afford it if they can afford the phone contract. A free phone on contract or a 30% less expensive phone off of contract would be compelling enough to drive a larger market share.
My guess is that Apple will introduce a quicker update to these phones and drop the iPhone 5c to $450 in April, the 5S to $550, a new 6 for $650, and a new larger 6 for $750. Higher prices are not going to drop demand for the more expensive phone. Remember the customer in the west is paying $2500 over the life of the contact for wireless. Another $100 will not stop sales of a bigger phone. I would expect the 6 to be standard with 32 gigs of storage. Perhaps we will see the next leg up in Apple's financials after the introduction of this phone. If I am right about this then this year's gross margins for Apple may break 40% again. Next year the gross margins could drop back to 38%.